Why Bitcoin is the way of the future

Bills and coins are on their way out and digital currencies are on the rise.

How's this for a bold statement: all conventional currencies will fail over the next 30 years and will be replaced by cryptocurrencies, such as bitcoin. This despite the troubles Bitcoin has faced in the past few months — troubles that had nothing to do with the virtual currency itself, but rather with the people who offered exchange or storage services for the currency. A word to the uninitiated: Bitcoin refers to the technology; bitcoin (lowercase) is the currency.

Like a lot of people, I thought this was a fad, a techno bubble, all hype. After all, with no country's central reserve bank backing it, there is nothing to support its value. Its perceived lack of oversight and traceability also led me to believe it was most attractive to criminals looking to circumvent the law. And because it's based on an IT program, someone somewhere could break the code and take control of the currency.

Then I started digging and completely changed my tune. Bitcoin, the first and most popular open-source cryptocurrency (but not the only one), is a disruptive technology that is here to stay. In fact, Bitcoin has already been around five years. It has fuelled billions in trade — and is growing exponentially. For good reason: distanced parties can now complete a transaction using bitcoin without requiring a middleman such as a bank.

According to the Federal Deposit Insurance Corporation, 8% of US households do not have even one bank account. The World Bank reports that 36% of the global population does not have a bank account, largely because it's too costly and inconvenient to get to an institution. That means 2.5 billion people cannot perform a financial transaction with someone in another region. At the same time, 85% of the world's population has access to a cellphone, which means they are a ready market for an electronic payment system. Hello bitcoins, which are stored in an electronic wallet, eliminating the need to have an account with anyone.

As all of these pieces started coming together, I had an aha realization: currency is no longer country-based. Thanks to the euro, which was created to facilitate easier intercountry trade, we already have currency transactions taking place that are not controlled by a singular country. Since the 1970s, all the world's country-backed currencies have been fiat currencies. That is, they are not fixed to any thing or standard. The value of a euro or a Canadian dollar is worth whatever the marketplace says it is worth. There is nothing to support their values. With this understanding and the fact that society is digital and does not want or need physical cash anymore, the emergence of Bitcoin is in many ways the next natural evolutionary stage of currency transactions.

It is also completely transparent — unlike cash, which is completely private and untraceable. Yet one of the biggest criticisms of cryptocurrency is its perceived anonymity. As an open-source currency, bitcoin is fully transparent and decentralized. There is no clearinghouse. Anyone can access the entire source code and track all transactions between numeric ID coded wallets (tracking is called "mining" in Bitcoin-speak). As a bitcoin travels from wallet to wallet, it is being verified by a whole bunch of people. Double-spending is prevented.

What's the purpose of money? It is a store of value and medium of exchange that two parties are willing to accept. Bitcoins have these characteristics. At the same time, as a digital currency, it can be delivered at little or no cost, much like email. Still, because it challenges the status quo by isolating out the influences of government currency policy, the power of the centralized clearinghouse and the service charges that underpin current financial systems and institutions, there is huge pushback. But Bitcoin is still in its infancy and momentum is building. It is the future.

About the Author

Dwayne Bragonier


Dwayne Bragonier, CPA, CA, CA•IT, is president of BAI Bragonier & Associates Inc. and the founding architect of the BAIWay. He can be reached at dwayne.bragonier@bragonier.com

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